Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I thank the Minister for being here in person to discuss this issue with me. As he will be well aware, Allied Irish Banks is 100% in State ownership. Yesterday it announced it was adding 0.4 percentage points to its standard variable mortgage rate and raising variable rates at EBS by 0.25 percentage points. As the Minister will know, this move by AIB will adversely affect 70,000 AIB variable rate mortgage holders and put struggling households under further pressure. AIB's average variable rate mortgage is around €130,000 and this rate increase will mean an increase of almost €300 annually for its variable rate mortgage holders. AIB's standard variable customers absorbed a total increase of 1 percentage point in their mortgage rates in 2012. AIB will say that the decision to raise its variable rates is driven by the need to ensure that the bank's lending is at a sustainable level long-term. However, this is the same bank into which the taxpayers of this State have pumped €21 billion during the past four years. It is true to say that AIB has been at the lower end of mortgage lending but there is a genuine concern that it is the variable rate mortgage holder who is being asked to pick up the tab and is being unfairly hit. There is obviously a connection between this announcement and the expected announcement next week from the ECB of a reduction in interest rates, which will be welcomed by those on tracker mortgages. However, it is clear that what AIB and other banks are doing is robbing Peter to pay Paul, and that in order to absorb whatever move the ECB makes, variable rate mortgage holders will be asked to pick up the tab.

Considering our relationship with this bank, the €21 billion we have put into it, the level of resentment in Irish society about what the Irish taxpayer has had to do to save it and the amount of pressure mortgage holders are under, any mortgage holders who listened to radio reports or read newspaper articles on the rate increase this morning would have got a cold shiver down their spines when they realised that mortgages they find almost impossible to service will be even more difficult to service as a result of this announcement. Is there a plan to break the toxic link between the pressure faced by those on variable mortgages and those on tracker mortgages? There is obviously a connection between what the ECB will do next week and what AIB did yesterday. Does the Minister have any words of comfort or a direct message of comfort to offer to those who are paying variable rate mortgages and who will do so for the foreseeable future? Mortgage holders who heard yesterday's announcement will have thought about the 1% they were asked to contribute last year. There is a further increase now and they are wondering what is around the corner in terms of what more they might be expected to contribute. Every time there is word from the ECB about a lowering of interest rates, they will expect an increase in their variable mortgage rate.

I ask the Minister directly if there is a plan to break this link. Is there some effect he can have on the situation? What words of comfort can he offer those mortgage holders who are literally terrified not just about yesterday's announcement but about what is to come in the coming months and years?

Michael Noonan (Limerick City, Fine Gael)
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While the Government is acutely aware of the increasing financial stress that some households are facing in the current environment, ultimately, the pricing of financial products, including standard variable mortgage interest rates, is a commercial matter for the management and the boards of the institutions concerned. As the Deputy will be aware, the relationship framework with the bank provides that the State will not intervene in the day-to-day operations of the bank or its management decisions. These frameworks are published on the Department of Finance website. I must ensure that the bank is run on a commercial, cost-effective and independent basis to ensure the value of the bank as an asset to the State, as per the memorandum on economic and financial policies agreed with the European Commission, the ECB and the IMF.

Neither the Central Bank nor the Department of Finance has a statutory function with regard to interest rate decisions made by individual lending institutions at any particular time. While this decision by AIB is regrettable, it is strictly a commercial decision by the board of AIB and I understand that the increase brings AIB in line with the market average. The standard variable rates charged by the Irish banks are significantly below the equivalent rates charged by banks in the rest of the euro area, even though many of these banks have far lower funding costs.

It must be remembered that in order to fund mortgages, the bank must borrow at current wholesale rates, which are higher than the ECB base rate, and must ensure that the rate at which it lends is economically sustainable and provides a return for the bank and, ultimately, the State as its shareholder. It would not be fair for 2.1 million taxpayers to subsidise 138,000 owner-occupier mortgages, especially when the vast majority of these mortgage holders can afford to pay their mortgages.

I understand that the Central Bank of Ireland pays attention to the effect of any increases in the standard variable rate on mortgage arrears, and would no doubt be concerned if banks were exacerbating their arrears problem and, as such, impairing their ongoing viability by such actions.

The Government has recently set out targets for banks regarding offers made to customers in arrears. The insolvency service was launched last week and has issued relevant guidelines ahead of the acceptance of applications in the future. I understand from AIB that in the course of quarter one, nearly 8,000 customers who were in arrears were cured out of arrears via a combination of business-as-usual arrears management activity and the completion of permanent restructures and that circa 1,400 split mortgage offers have been made by the bank to its customers.

Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I thank the Minister for his reply. He states in his reply: "It would not be fair for 2.1 million taxpayers to subsidise 138,000 owner occupier mortgages, especially when the vast majority of these mortgage holders can afford to pay their mortgages." It is unfair that variable rate mortgage holders are asked to subsidise those on tracker mortgages. Those on tracker mortgages are protected by contract yet nobody in this House can speak up for those on variable interest rates. It is our responsibility to do that. Would the Minister commit to coming before the Joint Committee on Finance, Public Expenditure and Reform to offer us a three to five year plan to deal with those on variable interest rate mortgages because this situation will get worse? If we are serious about tackling the mortgage crisis we must have a three to five year plan because every time the ECB decides to decrease interest rates that has a positive effect on tracker mortgages but it is being subsidised by variable rate mortgages. That is not sustainable. In order to be proactive and constructive will the Minister come before the committee and offer us a plan to deal with those variable rate mortgage holders?

The insolvency legislation is very welcome. It is a first step in tackling this problem. It will be of great benefit to those in mortgage difficulties but we cannot deny that the variable rate mortgage issue is gathering momentum as a problem and it will continue to be a problem unless we have a three to five year plan in order to deal comprehensively with it.

Michael Noonan (Limerick City, Fine Gael)
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As I said in my initial reply neither the Department of Finance nor the Central Bank has any statutory power to direct lending institutions on the interest they charge on any particular mortgage. Debate, however, is always worthwhile and if there is to be a debate at the Joint Committee on Finance, Public Expenditure and Reform the appropriate invitations should be issued to the lending banks and to the organisations that provide mortgages. The committee can ask them if they are linking trackers with variable rate mortgages and what is their future plan.

The Government has set out its plan for dealing with impaired mortgages. That is pretty well known now because it was announced in great detail and already we can see from the 8,000 offers made by AIB in the first quarter of this year that the plan is being put into effect. It is of much shorter duration than that suggested by the Deputy.